The Securities and Exchange Board of India (SEBI), the country’s market regulator, has initiated a move requiring companies preparing for initial public offerings (IPOs) to exclude shareholders like private equity or venture capital (PE/VC) investors who plan to sell their shares from the decision-making process regarding IPO pricing. Sources familiar with SEBI’s actions informed Moneycontrol about this development.
SEBI’s rationale behind this decision is to prevent undue influence from these “selling shareholders” on the IPO pricing, which could potentially impact the IPO’s performance.
The regulator is concerned that these shareholders may prioritize maximizing their returns by pushing for higher price bands, potentially compromising the interests of the IPO-bound company and new investors seeking to subscribe to the IPO.
This move is part of SEBI’s ongoing efforts to enhance transparency in IPO pricing. With IPOs increasingly involving substantial secondary share sales by existing shareholders, particularly private equity or venture capital funds, SEBI aims to address potential conflicts of interest.
SEBI has also expressed dissatisfaction with selling shareholders being consulted in the allocation of shares to institutional investors. In some cases, merchant bankers have been instructed to ensure that selling shareholders, including their nominee directors on the IPO committee, do not participate in price determination and share allocation for the IPO.
